WPT Enterprises (Nasdaq: WPTE) shares have fallen from their highs around $20 just a couple of months ago, down to $14.06 at yesterday's close, just before the company released its first-quarter earnings. I've watched the drop with some interest, as WPTE is the kind of poker play I may want to make, should the stock fall further.
WPTE's revenues in the first quarter were roughly flat over last year at $4.1 million, while the company turned last year's $0.05-per-share quarterly profit into a loss of $1.6 million or $0.08 per share.
The details aren't all that important here: The key is that WPT Online -- the company's poker website, developed in partnership with WagerWorks -- is expected to go online during the second quarter. The promise of an online poker site backed by a powerful brand -- and with a business model similar to eBay's (Nasdaq: EBAY) -- makes up the bulk of WPTE's prospective value, supporting the company's market cap of $300 million or so.
Having said that, I am still a little mad.
In Stock Madness 2005, our recent hypothetical stock tournament, I made what I thought was a pretty good case for WPT Enterprises' future (using the argument that WPT Online equals eBay), yet it lost in the first round to Level 3 Communications (Nasdaq: LVLT). And then on the very next round, my colleague Bill Mann stole my exact argument and applied it to Motley Fool Hidden Gems selection Cryptologic (Nasdaq: CRYP) to beat another one of my horses in Home Depot (NYSE: HD). But I'm certainly not bitter about that. Nope, not a bit.
In fairness, Bill's original Cryptologic recommendation for Hidden Gems has worked out well thus far. However, for investment comparison, I feel that WPTE has by far the more relevant poker brand (can you name Cryptologic's poker site?) and certainly has the greater reach with the World Poker Tour's coverage of the biggest poker tournaments in the world outside of Harrah's (NYSE: HET) World Series of Poker. This will be a tremendous advantage over second-best online poker sites such as PokerStars and Ultimate Bet when WPT Online makes its debut this quarter.
Ultimately, I think WPT Online will be able to leverage the WPT brand and reach into a decent shot at the No. 2 position in the next few years, while far-and-away, No. 1 Party Poker's eBay-like network effects will be difficult to overcome. But if Party Poker parent PartyGaming -- which reportedly earned a $350 million profit last year and is about three or four times as large as the next-biggest competitor -- is worth $6 or $7 billion, then it's not difficult to imagine a second-best player being worth a quarter of that.
That said, there may be some value in WPTE at about $13 or around $250 million, and the stock may be worth a speculative bet here. Of course, WPT Online isn't even online yet, and I could be completely wrong. Moreover, the TV business and merchandising isn't going to cover the $250 million market cap if WPT Online flops, though I don't see that as being likely.
Less risky alternatives include waiting for a better price, waiting for more information on how WPT Online performs, waiting for PartyGaming's prospective IPO (initial public offering), or staying out of the online poker game altogether.
In the meantime, poker-playing investors should check out 10 investing tips from the Mike Caro University of Poker, as well as:
Fool contributor Jeff Hwang owns shares of eBay and Level 3 Communications. The Fool has a disclosure policy.
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